The Natural Rate of Unemployment Research Proposal

The Natural Rate of Unemployment - Research Proposal ExampleAccording to the model, the workers and the firms undertake negotiation in order to decide on the titulary this. This negotiation is done irrespective of the expected price level of the providence. The nominal wage is determined as the product of the target real wage account and the expected level of price in the economy. Most of the economists are of the opinion that the nominal wage in the economy is sticky in the short run. With a sticky nominal wage in the economy, the prices would increase from P to P0. This would reduce the real wage rate in the economy.Since the salary are the prices for labor the assume curve for labor would be a downward sloping curve and the supply curve would be an upward rising one. The now the labor marketplace would comprise of the employed and the unemployed labor force. Thus the total labor in the economy would beTherefore the level of unemployed in the economy would be LN, where L is t he total labor force, N is the employed and U is unemployed. Therefore the natural rate of unemployment in the economy would be U* / L. instantaneously the wage setting carnal knowledge establishes a negative relationship between the real wage that exists in the economy and the rate of unemployment existing in the economy. This relation can be represented by the downward sloping curve that is shown in the diagram below. As the rate of unemployment in the economy would increase the wages that the laborers would demand would be less (Broughton, 2009. pp. 3-5).